Fed Officials Consider Slowing Quantitative Tightening, Sparking Treasury Rally and Weakening US Dollar

Today's expected range for the Canadian Dollar against the major currencies:

US Dollar        1.4100-1.4310

Euro                 1.4730-1.4960

Sterling            1.7800-1.8040

WTI Oil (opening level) $72.29

The CAD is opening at 1.4213 ( 0.7036 )

Headlines 

·    The FOMC minutes sparked a rally in treasuries and a weaker US dollar as they showed that Fed members discussed pausing or slowing the quantitative tightening (QT) policy, under which the Fed continues to sell USD 50 billion per month in Treasury holdings. They considered maintaining restrictive rates if the economy remained strong and inflation high but noted easing could occur if the labor market weakened, economic activity slowed, or inflation quickly returned to 2%. They emphasized the need for more evidence of sustained disinflation.

·    US housing starts fell 9.8% month-over-month to an annualized 1.366 million in January 2025, down from December's 10-month high of 1.515 million and below the 1.4 million forecast. Severe snowstorms and cold weather disrupted construction, with potential rebounds limited by rising import tariffs and high mortgage rates.

·    Ukrainian President Zelensky criticized US President Trump for being in a disinformation bubble and called the US demand for USD 500 billion in minerals "not serious." He stated that he cannot compromise his country and highlighted a lack of trust in Russian President Putin. Zelensky expressed his desire to end the war with Russia this year and stressed the importance of a 'constructive' relationship with the US.

·    In response, Trump, via Truth, labelled Zelensky a dictator without elections and warned him to act quickly or risk losing his country. Trump accused Zelensky of convincing the US to spend USD 350 billion on an unwinnable war, suggesting it could never be settled without US and Trump's involvement.

Key Points 

·    Equities: US hits record highs; Trump’s tariffs hit EU autos; Palantir -10% on CEO share sale.

·    Volatility: VIX stable at 15; futures slightly up; market cautious but resilient.

·    Currencies: JPY powered higher in the Asian session, with USDJPY nearing 150.00

·    Commodities: Crude pauses on US stock build. Gold hits fresh record on safe haven demand

·    Fixed Income: US yields edged back lower as FOMC minutes reveal discussion on slowing or ending Fed’s QT